Russell back below 500 as economy, job fears counter bargain hunting

Small-cap stocks flashed some surprising upside muscle on the opening, but the initial support from bargain hunting was quickly countered by selling stirred by worries over the sluggish economy, a troubling jobs outlook and sloppy earnings numbers. The Russell 2000 (NYSE:IWM) was down 5.88, or 1.17%, at 496.08, slipping back below the 500 line, which opens the door to further chart-related selling if that mark now becomes resistance.

The weekly unemployment claims report came in above the forecast at 478,000, topping the projection by 13,000. The Labor Department said that claims were boosted some 12,000 by Hurricane Ike and that the number of continuing claims dipped slightly in the latest week. However, weekly claims, the four-week moving average and continuing claims are all hovering near multi-year highs that are consistent with a recession.

Most analysts are predicting a sharp rise in unemployment levels in coming months, and former Federal Reserve Chairman Alan Greenspan said earlier today that there will be a significant rise in layoffs and unemployment still to come. Greenspan is testifying today before a House oversight committee on the role of regulators. He also said that stabilization in home prices is still far away.

Speaking of the housing issue, RealtyTrac released a report early this morning saying that foreclosures were up 21% from September 2007 and up a whopping 71% from the third quarter of last year. They estimated that 1 in every 475 homes . . .

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